Home sales report, consumer confidence index suggest slower growth.

WASHINGTON -- New home sales rebounded more than expected in July, but consumer confidence slipped in August rather than holding steady as analysts had anticipated, according to two reports released yesterday.

Despite sending somewhat mixed signals, the reports when added to other recent figures indicate that growth is likely to slow in the second half of the year relative to the first half, economists said.

The "reports point to a moderately slowing but basically healthy economy," said John Mueller, chief economist of Lehrman Bell Mueller Cannon Inc., a financial advisory firm in Arlington, Va.

New single-family home sales surged 8.3% in July to a seasonally adjusted annual rate of 664,000 units, the Commerce Department reported. Analysts had expected the rate to be about 610,000.

Sales grew strongly in most regions: the South surged 17% to a 289,000 rate; the Northeast gained 9.8% to 56,000; the West increased 6.5% to 198,000; while the South fell 6.2% to 121,000.

The department revised its sales estimates for both May and June up to 692,000 and 613,000 respectively, which added to the report's strength.

At the same time, the Conference Board, a private research group, reported that its consumer confidence index fell to 89.0 in August from 91.3 in July.

"In the latest survey, consumers are somewhat less positive than a month earlier in their assessment of prevailing economic conditions, and also less optimistic in their expectations for the months ahead," the New York-based group said.

Daryl Delano, senior economist with Cahners Economics Inc. in Newton, Mass., said the reports are "very consistent" with his view that growth will slow markedly in the second half of the year from average growth of 3.6% in the first half.

Despite the rebound in July, home sales have consistently trended downward since last year, Delano said. Sales averaged 769,000 in the fourth quarter of last year, 687,000 in the first quarter of this year, and 659,000 last quarter, according to yesterday's report.

And unlike many analysts, Delano does not expect a rebound in growth of consumer spending in the third quarter compared with the second, which represented a dramatic slowdown from the first quarter. "But I don't think we'll see a drop-off either," he said.

The Conference Board said its August survey revealed that consumers have modestly cut back their plans for buying houses, cars, and appliances in the coming months. The confidence index is based on a survey of 5,000 households.

"Latest consumer confidence readings are somewhat less optimistic than a month earlier, but the present level of confidence has been associated with a reasonably strong economy during the 27-year history of the survey," said Fabian Linden, an executive director of the Conference Board's Consumer Research Center.

Dan Seto, an economist with Nikko Securities Company International, said consumer confidence is bound to weaken some in the coming months if growth is really slowing, which he believes is happening. "We're probably not facing plunging confidence, just slight deterioration," he said.

Seto also predicted that consumer spending is likely to remain stable, at best, in the coming months.

The Conference Board reported that fewer people in August said business conditions were "good" and jobs were "plentiful" than in July. Also, the number of people saying they expect the economy to be in better shape six months from now also fell slightly, although they still greatly outnumber those who say it will be worse.

"Regarding their families' economic situation six months from now, expectations are substantially less positive than they were previously. On this issue, the number of optimistic responses is the lowest in six months," the group said.

The jury is still out among analysts as to how fast growth will slow following five interest rate increases so far this year by the Federal Reserve.

Delano forecast growth averaging under 2.5% in the second half, with a continuation of strong business investment and lackluster consumer spending. Meanwhile. Nikko Securities is forecasting growth of just under 2% in the final six months of the year.

On the other hand, Mueller predicted that growth will average about 3% during the second half of the year. He said it will take time for those rate increases to work through the economy.

"I suspect growth won't slow as quickly or as sharply as some expect," Mueller said, noting that consumer spending will be stronger than expected in the coming months.

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